Wednesday, October 24, 2012

"The owner and management" and "the workers (Human-Capital)" create wealth within a firm: Government is irrelevant!

"The owner and management" + "The workers" + "The exogenous factors" create wealth within a firm.


The exogenous factors can be divided into the two categories, the demand effects and the supply effects.

The demand side: The business cycle (Recovery/Boom & Recession/Depression), the fashion, and the geographic advantage of trade.

The supply side: The weather, the efficiency of supply chains, and discovery of the resource.


The owner and management is reliable on the final decision making, human resource, the responsibility, and the value of the share (It is determined by not only the company's performance but also the personality of the leaders in it)

The Workers are considered not only as the labour force but also as the human capital. The human capital development is an important factor of production severely affecting the firm's performance. It is not only for the supply side but also the demand side (Consumers' and investors preference due to the quality of the workers' personality, commitment, and good contingency effects to their community) and Thus, the investment to the workers is highly required to increase the revenue.


On the other hand, the government action and regulation do not have a big effect on the productivity and the value of the firms' wealth. Taxes can repress the consumers' and producers' activity whereas subsidies can aid their activity. But, these actions hardly divert the trend or the supply line.

Tax: Someone will find a substitute if the demand is elastic to the price change, or still keep consuming if the demand is inelastic to the price change. In a healthy capitalist economy, the suppliers will eventually find out the way to reduce the cost to compensate for the tax imposed as their extra cost on their production.

Subsidy: This does not take an account of the long term sustainability. It may give a temporary rise in both the consumer surplus and the supply efficiency. The supply side become excessively dependent on the public supports (Even the PFI is criticised as the cause of the huge damage on the public finance). The demand side will face the inflation which consequently increase their real cost of their goods&services!

In addition, subsidising to one specific good/service will depreciate the demand of the substitutes, and then depreciate the competition as well.

The inflation occurs because the supply efficiency (E.g. Supply-chain management, Resource management, and the technological improvement) itself is not improved. If the demand is continuously growing, the cost before subsidised will be going up rapidly so that the cost for this subsidies (I.e. taxing from others and/or the debts) incurred will increase exponentially. Furthermore, it causes the excess of usage of goods&services, which induces the inflation. If there is a frustrated demand, then the lack of supply is usually caused by the lack of competition of the suppliers in the market. Until either the supply efficiency or goods&services is improved or another competitor comes into the market to increase the supply, the price should not artificially controlled. Otherwise, the unnatural market condition results in the imbalance of the demand and the supply, which is the cause of the inflation.

Regulation: Unless a business is harmful to one individual and/or a group of individuals and/or something becomes excess, regulation hardly affect either demand or supply of businesses. Of course, regulation is important to enable individuals to gain the knowledge about the potential risk incurred on a particular good/service. Therefore, regulations have a significant effect on their decision making process. Nonetheless, it is very difficult to control the quantity of goods&services demanded and supplied as long as these consumers are willing to purchase and the producers are willing to produce. They always tend to try to find the substitutes and/or find another way to produce and consume which these regulations do not regulate. Financial market is the most intensively regulated one among all the market existing. However, its activities have never stopped expanding further even to cause the excess and the macroeconmic instabilities. All in all, regulations are needed in order to enable individuals to be aware of the potentially involved risk in the businesses, but it hardly stops individuals involving into these businesses as long as they are still willing to participate even after being aware of.

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